Editor’s note: NetApp (Nasdaq: NTAP) reported earnings earlier this week, and Jane Wright, a senior analyst at Technology Business Research, offers her insight. NetApp operates one of its largest campuses in RTP.
HAMPTON,N.H. - NetApp’s 3Q13 financial performance reflects a vendor that is poised to overcome near-term macroeconomic uncertainties and continued hardware commoditization and to achieve long-term revenue and profit growth. In 3Q13 sales of stand-alone software and services offset double-digit hardware revenue declines to drive up gross margin 300 basis points to 62.3% on the back of 0.6% year-to-year corporate top-line growth.
This performance was supported by branded revenue, which NetApp reported grew 5% year-to-year and 4% sequentially to account for more than 90% of total revenue.
NetApp’s continuing strategy of investing around cloud deployments and software-defined data centers helped the vendor achieve growth in 3Q13. While its storage hardware revenue experienced a double-digit decline compared to last quarter, NetApp’s software and services revenues grew modestly. By driving its Data ONTAP storage operating system into the data centers of more customer organizations and cloud providers, NetApp is positioning itself to provide value to an evolving customer base.
NetApp continues to see considerable traction with its Clustered Data ONTAP, which offers high levels of scalability and uptime for storage customers. In 3Q13 NetApp reported that it shipped more than 1,900 cluster nodes (storage controllers in Data ONTAP clusters), representing an increase of almost 300% from 3Q12 and nearly 60% sequentially. Furthermore, the vendor noted that 37% of its high-end systems and 24% of its midrange systems were deployed in clustered configurations.
NetApp’s highly focused strategy around storage management makes sense in an IT environment today where customers are grappling with complex, perpetually sprawling storage ecosystems. However, TBR believes that while NetApp is a leader in the space, it will face growing competition as other vendors look to seize similar opportunities in the market.
NetApp also is securing its core midmarket revenue base by strengthening its channel partner network in emerging markets.
NetApp is focusing on securing its SME install base in 2H13 to combat intensified competition in the midmarket from vendors such as Dell and EMC. NetApp will continue to lead with software as its core value proposition, particularly as data center customers explore more commoditized deployments and seek better management through software. NetApp will leverage its channel partners extensively to help customers support growing data management requirements for virtualized and cloud environments. With these partners, NetApp will target emerging market demand for IT infrastructure upgrades, including the application of software-defined storage (SDS) solutions, to expand its SME market share and bolster its professional services and hardware revenue performance.
NetApp is leveraging Data ONTAP as its core value proposition to expand its presence in public and hybrid cloud deployments aswell.
NetApp works closely with partners and invests in indirect sales initiatives to develop cohesive messaging campaigns that convey the performance and management benefits of using Data ONTAP, NetApp’s storage operating system, in hybrid and public cloud deployments. In particular, Clustered Data ONTAP’s capabilities such as workload optimization, scalability and software-defined management will attract enterprise and service provider customers that are building out clouds, which will help NetApp gain additional share in the storage market.
In 3Q13 NetApp and Oracle announced a joint development and testing initiative to expand support for Oracle Enterprise Manager, enabling customers to use ONTAP to manage databases regardless of their location. In the same quarter, NetApp and VMware announced a partnership for closer integration of NetApp storage arrays with VMware offerings such as vSphere, vCenter Server and vCloud Automation Center. NetApp leverages these joint initiatives and partnerships with global IT vendors to strengthen its position against formidable competition from other software-defined storage solutions, such as EMC’s ViPR.
However, EMC owns 80% of VMware, so the NetApp and VMware partnership may face uncertainty in the future.
(C) TBR
